PUNE (CoinChapter.com) — The crypto market pulled off a much-awaited pattern reversal in the last week, gaining approximately 2%, or $212 billion, to clock a $1.91 trillion total market cap on Monday.
The uptick came after an almost 20% value erosion for the numero-uno digital asset Bitcoin (BTC) since the beginning of the new calendar year. Meanwhile, it also followed a similar reversal in the equities, where the S&P 500 and NASDAQ both traded in the green.
Goldman Sachs’s flow trader Scott Rubner noted that a record number of index puts had been purchased by institutional investors looking to hedge against the further downside. The fact has changed the facade of market risk dynamics overnight and marks an end to the liquidation panic, thus benefiting crypto.
Rubner, through the weekly tactical flow of funds note, quoted:
“What is most notable this time, is that, while we are still not clear of the net fund flow direction even after week 5”.
He also noted that for the first time in 2022, the net demand of investment assets is set to exceed net supply this coming week.
Risk-on sentiment returns, benefiting crypto
Global Equities have attracted capital inflows of more than $106B worth of inflows since the beginning of 2022. That marked the second-best start to the year on record, with $84.2 billion entering global equities in Jan. 2022 alone.
Goldman also suggested a notable cultural change in these funds’ flow, where this new money ventured towards the rest-of-the-world-equities, and not just the U.S., this time.
That suggested a renewed appetite for riskier assets in the market, benefiting Bitcoin and other top cryptocurrencies, including Ethereum, Cardano, Terra, XRP, Solana, Avalanche, etc. In particular, Bitcoin registered a circa 12% month-to-date growth to trade around $42,600 on Monday.
And so, it appears inflation risks had a major role in turning investors towards riskier assets all over again.
Intense inflation will remain
The U.S. Federal Reserve’s failure to tame inflation sooner led to a remarkable shift in market expectations that centered on five hikes for this year alone.
“Edul Patel, the co-founder of Mudrex, said, “this year, market sentiment has been dominated by the rate hikes from major central banks, as pressure mounts for policy moves to combat inflation.” Moreover, the correlation between crypto and asset prices has continued to go hand in hand over the past week.
“This marks a temporary phase of higher correlation between the risk asset classes before breaking out on different trajectories, in healthy economic conditions”.
Edul Patel, chief, and co-founder, Mudrex
Rather than facilitating a smooth transition for monetary policy and the economy, this continued go-slow approach has led to a need for stricter tightening moves.
That would amplify worries about how the global economy and markets will cope with rising borrowing costs and prices. Crypto assets like Bitcoin have historically enjoyed such fiscal limitations, with demand for hedges against inflation rising.
